VBTC: Australia's First Spot Bitcoin ETF Is Here

For many of us, thoughts about “cryptocurrency” are accompanied by the word “speculation” perhaps followed by images of imprisoned FTX crypto entrepreneur Sam Bankman-Fried.

The arrival of the first spot Bitcoin ETFs on the local bourse is undoubtedly a big development for the Australian market.

We sat down with VanEck’s Portfolio Manager Pranav Kanade and Deputy Head of Investments and Capital Markets, Jamie Hannah, who hosted a webinar on Thursday to field questions from prospective investors.

Here are some of the most insightful exchanges.

What differentiates VBTC from other Bitcoin ETFs?

First off, it’s the only one on the Australian Stock Exchange…with the most stringent regulatory requirements of any exchange in Australia. It has taken us three years of regulatory work with the ASX to get this over the line, who had 75 pages of questions.

We have had multiple meetings over many years to get this product launch, and they drilled into this product. To an extraordinary length. Doing full due diligence right down into Gemini – our custodian. So there’s been a lot of work that’s gone in, and hence why, the ASX has taken a lot longer than other exchanges.

There are two other competing products out there listed on Cboe, and unfortunately they’re not plugged into all the brokers, so not everyone can trade through Cboe. A lot of local brokers in Australia don’t have the ability to access that exchange. But we’re listed on the premier exchange, the ASX.

We also have the lowest fee in the market. And we have a long history of managing digital assets, with over $100 billion of traditional assets under management. My day-to-day job is managing investments across the world in traditional asset classes of shares and bonds. So, this is just another asset class in terms of the portfolio management functions that we run.

What has driven the price surge in Bitcoin since early 2023?

In 2022, you had a whole bunch of crypto centralised businesses that were, either exchanges or lending businesses in the crypto space, that went bankrupt for a variety of reasons. Those bankruptcies resulted in forced selling of Bitcoin, Ethereum, and several other crypto assets.

So, it ended the year on a pretty low mark, as you add a whole bunch of forced sellers of these assets, coupled with tightening monetary conditions. The US, the ECB, and the Bank of Canada were all tightening throughout 2022. Those two factors really hurt the price of Bitcoin coming into 2023.

And beyond that, in January there was an easing of monetary conditions. So global liquidity got better, which, again, was the catalyst for Bitcoin as well as other risk assets.

Another big catalyst was the banking crisis in the United States, when Silicon Valley Bank went under. There was this light bulb moment for a lot of folks, the realisation that “hey, the cash that I have in the bank might be at risk. Maybe I need to have some asset outside of the system, to have a hedge against the banking system”. That led a lot of people to think about buying some Bitcoin and another pivotal event last year.

The next big one was the market’s expectation of a Bitcoin ETF approval, because that would ultimately bring a new cohort of investors into the space, who couldn’t have previously bought it.

This year, the ETFs went live, there’s been over US$15 billion of inflows into these, which has been a massive positive. For every US dollar of inflows, that creates almost a 4-7x impact on the price. That US$15 billion inflow could theoretically have five times the impact in terms of the market cap growth it can create for Bitcoin.

Who are the market makers and how does the liquidity work?

Susquehanna, Flow Traders, Jane Street and Nine Mile. Since the start of the year, the US has taken over $20 billion dollars’ worth of assets into Bitcoin ETFs.

It’s unlikely we’ll see that same number here, but they have already got the pipes and the contributions in place to set this up. So, liquidity should not ever be a problem in Australia, because we have the same large market makers operating in Australia as we do in the rest of the world.

Why use an ETF to access bitcoin?

For most investors, it’s simpler and easier to invest in an ETF rather than holding bitcoin directly. You can trade a bitcoin ETF on ASX and hold it in your trading account like any other stock or ETF.

If you hold bitcoin directly, you are responsible for safe storage. Whereas with a bitcoin ETF, the fund manager is responsible for buying and storing the bitcoins.

VanEck’s bitcoins are held in custody with Gemini, one of the world’s largest crypto custodians, which are regulated in the US. They hold the bitcoin offline in cold storage, which means it is not connected to the internet and is less susceptible to hacking.

A bitcoin ETF also offers institutional grade protection. ETFs are established investment vehicles which are subject to regulatory oversight designed to